Wednesday, August 22, 2007

The Markets and the Masses

The markets. How do they work? When investing, we are told to look for solid companies with good earnings history, solid management, and strong growth. Try to find the companies that are financially stable with strong growth in earnings if we are a growth investor or possibly a low P/E if we are a value investor. This is great and I believe over the long term if you stick to your guns and look for good solid companies with a nice history of earnings and dividends and growth and proof that they have withstood some challenges and are still going strong then you will make a good investment over the longer period. Money will come to your pockets. It's just going to take 10 or 20 years of slow growth of your money.

Not for me! I want money now! Sure my retirement account is for 35 to 40 years from now. That's fine. Let those fund managers worry about investing for the long haul. But in my stock account, I want to see results. I want them fast. I want to see a 20% plus return this year and every year following no matter what the market is doing. This morning I was reading the book "Confessions of a Street Addict" by Jim Cramer. I'm not really a fan of Cramer. I'm not going to go out and buy everything he says to buy and sell everything he says to sell. His show on CNBC is a circus and he's the clown. He's just there to entertain us and it is entertaining. I'll admit if I'm flipping the channels and his show is on, I might pause to check it out for a few minutes. It grabs your attention. His book is interesting. It goes through his biography basically which I find interesting. It's not really helpful on my journey towards wealth but as a form of entertainment, I enjoy reading it. This mroning I read a section where Cramer talks about the markets are all about psychology. The underlying fundamentals don't matter. When you are trying to make money in the short term, you need to be able to understand the psychology of the masses of the people. And I couldn't agree more! Every little piece of news that comes out affects the price of this stock or that stock. Good earnings and the stock jumps. Bad earnings and the stock falls. It doesn't matter what the company has consistently done. Coca Cola is still going strong and not too worried about the current sub-prime mortgage crisis. Yet COKE fell along with all the other stocks this past month because of sub-prime credit worries.

In the short term, if you pay attention to the news and market psychology, you can make money. I don't have enough capital in my stock account to take advantage of this. I can't put $1,000 into a stock and watch it rise 1% like I knew it would and sell it for a quick profit. With the commissions I pay, I'd lose $4 on this trade. But if I had $10,000 and did the same thing, I'd make $86. So I'll stick to my covered call strategy. Until I have more money. Then I will use some capital to trade on the news and begin to bring in some good returns quickly.

If you have an opinion on this let me know. If you have enough money to trade, the markets up today, why not take out a percent or two. Go get yourself some returns. I'll just continue to hope that my covered call position will make money over the next month. Until next time, I'm a dreamer.

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